LSE's Furse playing exchange field

Chief of long-courted London exchange shows 'nerve'

By

SimonKennedy

LONDON (MarketWatch) -- Clara Furse, chief executive of the London Stock Exchange, has proved a difficult woman for potential bidders to impress, or even to meet, as the fight for the exchange steps up a gear.

Battle-hardened from years of takeover speculation, Furse has consistently dismissed offers as too low, a tactic that has been widely applauded as the LSE's shares (LSE) rocketed 250% in the last year.

Her decision to continually hold out for higher offers, including dismissing Nasdaq Stock Market's
NDAQ, -1.09%
recent 950-pence-a-share, or $4.2 billion, offer without meeting its management team, has effectively played possible bidders off against each other.

The eventual buyer, if there is one, will now have to pay top dollar to win over shareholders.

Analyst estimates of what Nasdaq could afford to pay range between 1,074 pence and 1,650 pence a share, although observers are divided over whether Furse and the LSE will ever endorse a bid.

Through an LSE spokesman, Furse declined to comment for this article.

But in an editorial published in the Daily Mail days after Nasdaq's bid, Furse alluded to her strategy, as she criticized U.K. companies and investors as too willing to sell out to foreign buyers "rather than fight their corner or go on the offensive."

"It seems that those running U.K. companies are responding to what they see as a collective loss of nerve on the part of professional investors," Furse said without mentioning the LSE specifically. "We now live in a society that prizes certainty.

"Sadly, the City [London's financial industry] is increasingly influenced by a political culture that eschews risk, even though it means foregoing the chance of significant reward.

"It is fervently to be hoped that British businesses may start to look again at creating value through expansion," she added.

The exchange has also attempted to fight off a takeover by doubling the amount of money it returns to shareholders to 510 million pounds ($892 million). See archived story.

The current round of takeover speculation kicked off in December 2004 when the Deutsche Boerse launched a conditional offer, which was eventually pulled after shareholder pressure. But it was then followed by a 580-pence-a-share offer from Australia's Macquarie Bank.

"At the time of the Macquarie bid, everyone was saying Furse was opposed to any offer because she was saying it was worth over 700 or 800 pence," said Elie Darwich, an analyst at Exane BNP Paribas.

Since the Macquarie bid, LSE shares have almost doubled to 1,146 pence.

"It appears clear that she was right," said Darwich.

In fact it was Furse and the LSE's robust defense against Macquarie that actually showed how valuable an acquisition the exchange could be, said Angela Knight, chief executive of the Association for Private Client Investment Managers and Stockbrokers, which represents many of the firms that trade on the exchange.

'It is fervently to be hoped that British businesses may start to look again at creating value through expansion.'
Clara Furse, London Stock Exchange

The defense documents demonstrated the LSE's potential for growth, attracting the attention of Nasdaq, and possibly the New York Stock Exchange
NYX, -0.52%
said Knight.

In particular, the LSE has grown as an international venue, attracting 33% of all international listings on major exchanges in 2005 and 63% of all European IPOs since 2000.

Power of the Furse

Educated at the other LSE -- the London School of Economics -- Furse joined the exchange at a difficult time in its history. She replaced Gavin Casey, who was ousted after a botched merger attempt with Deutsche Boerse (581005), the German exchange that has continued to court the LSE throughout Furse's reign.

Furse joined the exchange from Credit Lyonnais Rousse, where she was group chief executive from 1998 to 2000. She also held a string of roles at Phillips & Drew, now UBS, where she climbed the ranks from commodity broker to global head of futures.

On taking the LSE's top job in January 2001, the Canadian-born daughter of Dutch parents became the first woman to hold such a senior position at the exchange in its 228-year history. And she soon became an expert in handling takeover approaches.

Furse is also credited with spearheading international growth and expanding the specialist AIM market for smaller companies.

"I think Clara's done a pretty good job," said Knight. "Operationally she has got it going very well, despite the distraction of handling seemingly endless bids."

"She has managed to take the best from the situation and make London very appealing for international firms," agreed BNP Paribas' Darwich.

'She has managed to take the best from the situation and make London very appealing for international firms.'
Elie Darwich, BNP Paribas

Furse took the LSE public in the summer of 2001, and, under her leadership, annual net profit has roughly quadrupled to 61.5 million pounds.

But there is at least one major blot on Furse's résumé.

In 2001, shortly after her arrival, the LSE lost out to rival Euronext (005777) in the battle to buy the London Financial Futures and Options Exchange (Liffe), London's leading derivatives exchange.

The failure to take control of the Liffe occurred even though Furse had extensive links to the futures market, having spent around nine years as a Liffe board member, including two years as deputy chairman.

The lack of a derivatives business is one of the key reasons that the LSE continues to be viewed as a takeover target, commentators agreed.

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